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Keep it up Paul, you're turning out excellent pieces in short succession.

George Osborne was the first to talk about austerity and would be ill-advised to go into detail before he's had a chance to look into the steaming crock that might come his way after the General Election. Trouble is for any would-be chancellor is that for every voter that seeks the truth, there are a hundred others for who it is unpalatable and no one ever got elected on a ticket to raise taxes.

The lesson needed to be learnt is that Governments of themselves cannot produce economic growth. They can inflate an economy (through QE) to be sure, but the can only use the tools of tax rises and public spending cuts against the hydra of growing debt. For all the optimistic pronouncements politicans make, the shortfall between their projections and the real figures becomes a measure of their credibility gap.

Gordon Brown claims to know how to run an economy in both good and bad times (or did he mean "ruin"?), but clearly lacks a grasp of the basics. David Cameron looked very uncomfortable on economics last night, as did Nick Clegg, but they have delegated the subject to more capable lieutenants who'll they'll allow to get on with the job without interference.

If Clegg is right about putting differences aside to tackle the issue, then a team of Osborne, Clarke, Cable and even Darling may have something to offer. I may not call it a "dream team", or even a "Fab Four", but at least it should be free of the meddling of Messrs Brown and (we trust) Balls.

Superb blog, as usual.

This is surely no time for the dithering that is bound to accompany a hung Parliament.

With the febrility and speed of modern markets, a 10-day hiatus could see the UK drawn into a currency crisis and a debt vortex

You know as well as I that any politician who goes out there and tells it how it is to the public will lose the election. Osborne suggested that we were in for an Age of Austerity and immediately support for the Tories dropped so they changed the mood music.

The public likes Big Government because they feel it provides them with services which are free. The fact that it isn't really free is irrelevant as the public sees it as a right.

This is the illusion at the heart of social-democracy; the illusion in which we are now trapped. So no wonder the mood music is defensive.

We have gone through a period of almost ten years when the government invested in public services. However, for investment read borrowing. For as long as the money flowed in through the door it didn't matter. Then the money not only stopped it went into reverse. So now we have a whopping debt.

The debt has to be addressed as it won't go away. Yet we still hear reactionary sentiments as if it can be wished elsewhere. Would that it could, but it can't.

My view is that we have to deal with the debt but in the process restructure our economy towards value creation, and reorganise our society away from centralised institutions, away from the idea that Other Peoples' Money is cheaper than your own and recover the real values of social solidarity: equality, truth, courtesy, discussion and respect. We can deal with this; but it will be plain hard work for quite a long time.

From where I sit I can see that not many understand my austere puritanical views as they still seem to think there is something to be had for nothing. My concern is that they drag us all down with their denial.

Quite simply we must learn from what has happened, deal with the culprits, and move on. I doubt if this will be done very quickly.

I will be backing Bob Russell (Lib Dem) in my constituency but if I was unsure my vote would definitely go to the party that tells me how bad it is going to be.

I know it is going to be bad, much worse than any party is suggesting and I think the reward you mention in your penultimate paragraph is spot on. Just tell us. We're British - we can take it.

Obamas court case against Goldman Sachs has been done probably for internal and external mass consumption, that he is with Main Street as opposed to Wall Street. By attacking the Euro and eventually Sterling all safe havens away from the dollar are being weakened. Only by returning to national currencies and restoring national production by limiting imports Argentinian style can the southern european countries hope to survive this economic contagion which is being spread by the banksters. Otherwise Argentinian style unrest will be soon on the cards. Historically the IMF has only ever left destruction and disaster in its wake. Asking it to rescue an economy is like asking Dracula to be in charge of a blood bank.

Given the mess we are in, what does a credible plan for eliminating the deficit look like? How much detail can be provided by political parties when all the information is held by Treasury civil servants?

What we should be getting from each of the parties is a strategy acknowledging the situation and setting out a timescale and an approach on the proportions to be delivered by taxation and cuts in public spending, supported by the criteria to be followed in determining how these decisions will be reached.

All we hear at the moment is what is to be protected. Not good enough. We need to know what is not to be protected and which taxes are to be raised.

Not telling us before the election is a sure way to ensure that the winners will be out of power for a generation.

Grow up boys - act like LEADERS and WIN votes.

The problem Paul, as I see it, is that half the nation has prospered under Brown and the other half has not.

If you bought a house 13 years ago, or speculated in buy-to-let, then the enornmous rise in house prices have left you feeling very content with Gordon brown. It is the same for virtually every Public Sector worker - the past 13 years have been wonderful in terms of salary, pension, shorter working hours, more holidays and security.

They want that to continue. Even now, with voting days away, they want the illusion, at least, to continue. They aren't going to respond at all well to anyone who comes along and points out the brutal economic reality to them.

In some respects this is like the phoney war of the Summer of 1940. We all know what is coming but if we close our eyes and feel the Summer breeze on our skin we can, perhaps, pretend that the worst will not happen.

Even now, with the PIIGS collapsing around us, most in this country will not thank any of the party leaders for spoiling their illusion.

There is, alas, a storm coming.

Nick Clegg was just on News 24 answering a young woman who asked him about where the cuts will come. She said that she would be paying taxes, she would be living through it, so she wanted to know how bad it was and where the cuts would come.

Clegg answered her by pointing out about all the middle managers in the Public Sector, in the NHS, etc, who could be cut. That savings could be made there by removing those layers.

Now, call me stupid, but if you are a middle management type in the Public Sector you are going to be listening to such things and thinking "Hmm, that doesn't sound good for my long-term future!".

@1

"The lesson needed to be learnt is that Governments of themselves cannot produce economic growth."

The lesson of the last 30 years (or more?) is that the private sector of themselves WILL not produce economic growth. Because, in the main, they are more concerned with financial engineering and extracting every last penny of short term profit rather than building businesses. And the Tories and New Labour have been happy to facilitate this.

What the country desperately needs is to move from a finance-driven economy to a manufacturing-based economy.

While I'm all too aware of the growing crisis, I would take warnings from the financiers with a big pinch of salt. They are quiet happy to devise ways of hiding Greek debt and then short their clients. Their solution, as always, is to bring in the IMF, who inflict more damage on the economy. Remember the last SE Asia crisis. The best survivor was Malaysia, who ignored the IMF, imposed capital controls and protected their economy.

OK, being in the EU, then such protection is harder to find, but the principle remains the same. Beggaring your economy will only make the problem worse in the short term.

Germany is playing a dangerous game here. Merkel is electioneering, but the Germans need to look at how much benefit they have gained from the open EU market. Their export machine has profited massively from this. So to some extent they do owe the Greeks a little tolerance. If the ECB took a firm stand, then the froth would disappear.

Of course, the financiers have an interest in continued instability - it's how the hedge funds make their money.

Since G. Brown wouldn't spell it out yesterday evening, now's his chance with Jeremy Paxman, who I'm sure will be all ears to his genuine debt reduction plan. And whilst he's about it he can explain those invisible PFI deals, how much debt have they added and what does he propose to do about it. Will we get any answers? No, of course not. We will be treated to the same old mantra, 'Trust me I know what I'm doing'! Not good enough. You are right Paul, this secrecy is going to result in a Greek style tragedy. A shame when there was every opportunity of getting an Irish style consensus before it was too late.
Regards, etc.

@9 gastrogeorge

Yes, an interesting rider, especially if the private sector contains [financial] corporations that can expatriate their profits to a lower tax regime. However primary growth does not come from Governments whose task it is to create the right environment.

Seek my post #25 on Paul's previous piece for a slightly shorter dismissal of the IMF.

"Last night Goldman Sachs issued a sobering and thoughtful note on the possibility of the UK getting the Greek contagion."

Is this credible insight from talented market participants, or a thinly veiled warning shot to the Gvt "Don't mess with us or we'll hurt you harder"??

Why has the West got itself hooked on junk(y) bonds?

Peter Warburton's analysis (circa 1999-2001) repays very careful reading:



"Beneath the surface, the values of the dollar, the yen and the euro have been eroded simultaneously by the over-extension of credit. The latent losses in the credit system, emanating from non-performing loans and defaulting bonds, represent a charge against the value of the currency, as surely as if the edges of the notes and coins had been trimmed away. There has been a reduction in the quality of credit rather than an increase in the quantity of money (net of writeoffs)."

The key porblem is, can anyone kill off such ridiculus levels of debt, quickly and painlessly? Errr... probably not. Japan has spent 20 years trying to covertly deflate:

"Japan has been experiencing a 'liquidity crisis' and deflation for the past 20 years and I seriously doubt that was caused by Basel, a more plausible explanation is that they refuse to kill zombie debts by refusing to mark to market, instead holding debts now 20 years later waiting for the price to match their fantasy"



(Courtesy of Stacy Herbert - the thinking man's Stephanie Flanders)

Poor quality PRIVATE credit is being dished over to the PUBLIC finances to prop up - "waiting for the price to match their fantasy"!

The charade can only go on for so long. But, when the fantasy is finally revealed, guess who will be carrying the can?

THAT REMINDS ME (#10)

If I remember, during his scatter-gun waffle, Brown told Mrs Duffy we had built lots of hospitals 'so we don't have to do that again', implying money freed up in the NHS buget. Doesn't PFI make a nonsense of that statement?

Swingeing cuts not needed - careful debt management and access to funds for borrowing including IMF yes. Try a swingeing wealth tax instead. Pips must be made to squeak. Invest in private and public sector jobs through infrastructure and other public works such as social housing. Long term strategy to manage down both public and private debt. Dont stop pound dropping another 20 cents against the dollar and euro.

The Guardian whose version of 'Left' so clearly despises working class people unless they are of foreign ethnicity, might instruct its minority readership to vote a certain way for strategic voting, and some might do it.

But the rest of the population will vote on immigration, cos they can see, eyes wide open, the connection - with economic recovery, with jobs and with housing; and know that a coherent united country can sustain anything, but that a divided country with alienated internal hateful elements can sustain nothing. And Im not just talking about the problem of the rich - who must be eaten ASAP.

#9 The real lesson is as follows:

Although I totally agree with you, I must point out the following. Unfortunately, the last 30 years has also been a shrewd manipulation of perceptions, by people ultimately asset grabbing in an "every man for himself" manner. Anyone playing it straight and NOT doing this, is actually losing out, big time:



As the saying goes – if you're sat down playing Black Jack and within 5 minutes you haven't worked out who the chump is, then YOU'RE THE CHUMP!

One of the problems with frank discussion of necessary cuts is that about 5.9 million people work directly for the government and a similar number are dependent on benefits. The very mention of the word 'cuts' is therefore likely to cost any party hugely in electoral terms.

What we've got is huge dependency combined with a private sector that simply isn't capable of (a) paying for this, whilst at the same time (b) remaining internationally competitive.

I've recently returned from Spain, and their system is markedly different from ours. Entitlement to unemployment and incapacity benefit is limited to the sum that your employer(s) have accumulated in social payments on your behalf. Once you've run through that sum, that's your lot, as far as the state is concerned. You then need to fall back on your extended family (who are likely to help you, in the Spanish culture, and are legally required to help you anyway). If your extended family can't help, then it's charities or nothing.

Incidentally - and before anyone points out that Spanish unemployment is 20%, and 40% of 16-24 year olds - the unemployment figures for Spain are a big overstatement. With family-owned concerns (such as restaurants and cafes), the head of the family is often the only person officially 'employed'.

Where the UK benefits culture is concerned, three factors - demographics, structural economic weakness, and the newly-straitened fiscal condition of the state - suggest that our ability to afford this dependency structure is time-limited. Therefore, finding an alternative system is imperative.

One idea would be to increase the work incentive by raising tax allowances - at £6,475, the current allowance is, ludicrously, lower than the minimum wage. Second, look at paying benefits in kind rather than in cash, so that returning to work offers qualitative as well as quantitative attractions.

the Guardian's editorial take on it all - no surprises but a decent explanation as to the pros and cons of voting the liberals in ahead of the conservatives...

WOULD IT WERE THAT SIMPLE (#19)

'WESTMINSTER' is a self-serving, self-perpetuating ethos, with no heart - and amorphous mass, difficult to kill. It is not a seat of government, it is a backside of power. Power for power's sake. Only the complete de-Westminster-fication of our governance, will afford the slightest chance of Clegg's 'difference' taking hold.

We should call in CONSULTANTS from one of the more successful countries and get them to select a site, design a building, set up a voting system* and devise an assembly, that is grounded in gravitas, integrity and dedication to the people.

* It seems obvious to me that universal suffrage is not only stupid, it is a manipulators dream. There should be stringent qualification to vote.

I have just watched the Brown interview with Paxman.

GB said in the interview that when he came to power in 1997 he had to confront problems with inflation and high interest rates he was talking rubbish.

A quick look at the RPI tables shows the truth. [Unsuitable/Broken URL removed by Moderator]

Inflation was undercontol and had been so for some years.

Interest rates show that it fell from about 7% to 5% during the period of Labour Government however some people think that the change from RPI to CPI was a cause of some of our problems with personal debt as it held interest rates too low.

The reality now is that inflation is far too high at over 4.4% (the highest since 1992) yet we have Base rate at 0.5% and peoples savings are being trashed.

The man is a disgrace; now where's his moral compass.

@21
Put aside your personal invective, and look at the facts. Following Lehman we were heading for a depression, then a recession, now very fragile growth. Martin Wolf and Sam Brittan in the FT have both recently backed Labour's cautious progress. Meanwhile the Tories got every call on the financial crisis wrong.

The politics of this is fascinating: we know that Osborne is busy polishing his 100 day plan, but what will Vince say (and do) when he sees it?

22

Are you saying that inflation in 1997 wasn't under control? If the leader of the Labour party suggests that he brought inflation under control he is clearly wrong (he said it twice). He has made that claim throughout the election, he must know that it isn't supported by the facts. The same man told our Rochdale lady friend that he would half the debt in 4 years.

Your suggestion that the Tories got every call wrong is itself an unsupported assertion. That is your opinion, not a fact. In reality we don't know what the consequences of any policy are, we just have to live with what is decided by those in power.

#1 Fairlopian:

"The lesson needed to be learnt is that Governments of themselves cannot produce economic growth. They can inflate an economy (through QE) to be sure, but the can only use the tools of tax rises and public spending cuts against the hydra of growing debt. For all the optimistic pronouncements politicans make, the shortfall between their projections and the real figures becomes a measure of their credibility gap."

of course Govts can produce economic growth, such an analysis could only be made without ANY background on how the Asian Tiger economies built themselves. Even in the West, most industries were deliberately grown by Govt sponsorship, tax-credits, and purchases. (for instance, the US aeronautics companies are all funded to the tune of multi$Bns by the federal Govt's purchases of military aircraft). The same has been true of the Internet, of Railways and cars, of Health - and most certainly of Agriculture.

Govt spending, in ALL advanced economies since the 30s, has had the State as the major player and investor. And investment leads to growth.

it is somewhat ironic that those who most bandy such beliefs around in the media, are also always the ones who argue for greater spending on arms, or other Corporate recipient State funding. It is somewhat dismaying how often that is brought to light in the media.


"Gordon Brown claims to know how to run an economy in both good and bad times (or did he mean "ruin"?), but clearly lacks a grasp of the basics. David Cameron looked very uncomfortable on economics last night, as did Nick Clegg, but they have delegated the subject to more capable lieutenants who'll they'll allow to get on with the job without interference."

Osbourne is a classic Tory, all fire and idiotic out-dated, superseded and overtly reactionary economic policy. Never mind that is has been shown to NEVER work, wherever it has been tried. Ireland, now, is discovering that when you make someone unemployed, you then have to start paying benefits. Gosh, what a SHOCK that is! More suited to managing a boy-scout pack 'treasury', which is probably where he learned his economics. Vince cable - sorry, but would be a FAR better shadow Chancellor than actual Chancellor. Is good at sniffing out problems, far less able at coming up with solutions. He would be a cats-paw of the Treasury within hours. Aren't Darling and Osbourne just clones? Paul would be the best Chancellor i can think of in the Country, right now. Pity he's already employed! ;)

"If Clegg is right about putting differences aside to tackle the issue, then a team of Osborne, Clarke, Cable and even Darling may have something to offer. I may not call it a "dream team", or even a "Fab Four", but at least it should be free of the meddling of Messrs Brown and (we trust) Balls."

a bigger stitch-up would be hard to imagine.


#2:

so you think that 'the markets' should get to choose our future Govt?


#9: excellently said.

#11: Whilst Govts primary task IS to nurture economic growth, sometimes it has to take the lead in certain areas to achieve it. For instance, it can cut taxes on cooperatives, especially in sustainability technology, and up the taxes on polluting multi-nationals. It can make the funds available for new cooperatives to start up (the interest for the workforce would be to pay off the loan as quickly as possible). Govt can do many things - if it chooses, and has the honest will.

#13:

"The charade can only go on for so long. But, when the fantasy is finally revealed, guess who will be carrying the can?"



#15:

"15. At 4:39pm on 30 Apr 2010, watriler wrote:

Swingeing cuts not needed - careful debt management and access to funds for borrowing including IMF yes. Try a swingeing wealth tax instead. Pips must be made to squeak. Invest in private and public sector jobs through infrastructure and other public works such as social housing. Long term strategy to manage down both public and private debt. Dont stop pound dropping another 20 cents against the dollar and euro. "



amazing isn't it? If you add together the amount 'lost' through tax-avoidance and the repayments on the money we gave to the Banks, you end up with very close to the 'Black Hole' amount in GBLtd. Better to whack up VAT though, and get the poorest to stump up for the lifestyles of the very wealthy.

its the way they assume we are too stupid to understand what is *really* happening, that sets my teeth on edge. Do you know what i mean?

peace.

#23:

"Your suggestion that the Tories got every call wrong is itself an unsupported assertion. That is your opinion, not a fact. In reality we don't know what the consequences of any policy are, we just have to live with what is decided by those in power."

well, we *can* look at how those policies have worked in other places that have tried them. Or our own history. Please find ONE example of a Society that used the method of public spending cuts to boost private enterprise and IT WORKED.

i certainly don't agree with Brown's brown-nosing of the Banks, but it is also clear that the Tories would actually be worse on that. I also have issues with illegal foreign wars, and once again the Tories were *more* gung-ho in using our armed forces for Bush's aims. They are not only American poodles - they are TOY poodles to boot. The ONLY way anyone could vote for them is that "they are not Brown". Thankfully, we have more choices than just the regular two this election.

i realise this is a painful, mind-numbing concept, but it IS possible that *both* main parties got everything completely wrong. One party argues that we need to hack a whole arm off, the other says that no, we should 'only' amputate both hands at the wrist.

and then we get to "choose" which 'solution' is best fitted to the problem of punishing shoplifting from Tesco's by the homeless.

this is our current political system reduced to its essence.